The funding of higher education in Scotland: implications of further devolution and/or independence

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1 The funding of higher education in Scotland: implications of further devolution and/or independence Professor David Bell ESRC Research Fellow University of Stirling 1

2 INTRODUCTION 2

3 Constitutional Options for Scotland Status Quo Devo + Devo More Full Fiscal Autonomy Independence 3

4 The Status Quo - Scottish Budget SG Spending Limits Cash Terms m m m m m Revenue DEL 27,259 26,270 25,896 25,429 24,961 Capital DEL 3,462 2,837 2,707 2,319 2,320 Total 30,721 29,107 28,603 27,748 27,281 Real-Terms Change year on year -5.3% -1.7% -3.0% -1.7% Real-Terms Change cumulative -5.3% -6.9% -9.7% -11.2% Scottish Further and Higher Education Funding Council Budget m Draft Budget m Plans m Scottish Funding Council FE Programme Scottish Funding Council HE Programme 1, , ,061.8 Scottish Funding Council FE/HE Capital Scottish Funding Council Administration Total Level 2 1, , ,596.8 of which: DEL Resource 1, , ,540.4 DEL Capital

5 The Status Quo - Scottish Budget Higher Education Student Support Budget Draft Budget m Plans Level 3 m m DEL Student Support and Tuition Fee Payments Student Loan Company Administration Costs Student Loan Interest Subsidy to Bank Cost of Providing Student Loans (RAB Charge) (Non Cash) Student Awards Agency for Scotland Operating Costs AME Net Student Loans Advanced Capitalised Interest (47.0) (50.0) (52.0) Student Loans Fair Value Adjustment (69.0) (69.0) (69.0) Student Loan Sale Subsidy Impairment Adjustments Total Level of which: DEL Resource DEL Capital AME

6 Alternatives to independence Devo plus and devo more No obvious implications for HE sector relative to status quo. Fiscal autonomy research councils part of shared services? A payment from Edinburgh to London would be required to cover common UK public goods and services (i.e. shared services ). The range of services included in this basket of shared services, how they would be paid for, and the authority the Scottish Parliament would have over such policies, would be subject to negotiation at the time of any revised settlement (Fiscal Autonomy in Scotland, Scottish Government 2009) Would the research councils form part of these shared services? 6

7 Independence and Higher Education Key questions for Scottish Government Would an independent Scotland want to increase/decrease level of support for HE Could it afford increased support? Existing structures and relationships Student demography stocks and flows University funding The tuition fee issue A proposed solution 7

8 DESIRABILITY AND AFFORDABILITY OF POST-INDEPENDENCE HE SUPPORT 8

9 Graduates make up an increasing share of the Scottish workforce Number of employees (millions) Graduate Non-graduate

10 Graduate premium declining slightly Graduate Premium (%) 100% 90% 80% 70% 60% ruk Scotland 50% 40% Graduate premium = Graduate wage/non-graduate wage 1 Source: Labour Force Survey 10

11 Spending on HE in UK low, but effective Spending on HE as Share of GDP Iceland United Kingdom Norway Ireland Sweden Denmark Finland Korea United States 29 of the world top 200 universities in the UK 11

12 Scottish HE Institutions 2012 Significant Income Generation 1,000m 900m 800m 700m 600m 500m 400m 300m 200m 100m 0m Funding Council grants Tuition fees Research grants and contracts Other income Endowment and investment income 12

13 Scottish Growth Sectors Have Strong Links to HE Oil and Gas Food and Drink Technology and Engineering Renewable Energy Life Sciences Tourism Creative Industries Financial and Business Services Chemical Sciences Construction Forest and Timber Technologies Textiles Unlikely to change immediately post-independence 13

14 HE as an export earner in an independent Scotland? Issues Migration/visa policy Implications for border arrangements? Co-operative/competitive outcomes among institutions Technological challenges Product differentiation What makes a Scottish HE course better? Policies to attract best scholars Salaries, working conditions etc 14

15 STUDENT DEMOGRAPHICS 15

16 Potential student numbers in Scotland static, growing in England Index 2013 = Scotland Wales NI England Current Age 16

17 Cumulative HEIPR Scottish Higher Education Initial Participation Rate (HEIPR) static 60% 50% 40% 30% 20% Other HE HNC/HND First Degree 10% 0%

18 Share of Students studying in HEIs in the UK by domicile and country of institution: Percentage share of student population in each country (%) 100% 90% 80% 70% 60% 17.9% 17.3% 18.2% 12.6% 2.6% 25.5% 11.5% 2.4% International students Other Uk students 50% 40% 30% 72.4% 84.5% 58.0% 92.1% Home students 20% 10% 0% Scotland England Wales Northern Ireland Country of Institution 18

19 RUK students share varies by institution The University of St Andrews The University of Edinburgh Glasgow School of Art Edinburgh College of Art The Royal Scottish Academy of Music Heriot-Watt University The University of Aberdeen Queen Margaret University The University of Glasgow The University of Stirling The Univerisity of Dundee University of Abertay Edinburgh Napier Glasgow Caledonian The University of Strathclyde The Rober Gordon University Scottish Agricultural College UHI Millennium Institute The University of West of Scotland Bell College Proportion of RUK Students in Undergraduate Intake 0% 10% 20% 30% 40% 50% 60% These data are calculated from HESA microdata and provided by Marta Odendal 19

20 Significant post-graduation cross-border flows 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% First Career Destination of Students Entering University Scottish Students at Scottish Institutions RUK Students at Scottish Institutions Scottish Students at RUK Institutions First Career Destination World First Career Destination EU First Career Destination RUK First Career Destination Scotland These data are calculated from HESA microdata and provided by Marta Odendal 20

21 FUNDING 22

22 Spending relative to population on HE is high in Scotland 140% 120% 100% 80% 60% Public Spending Higher Education 40% 20% 0% England Wales Northern Ireland Scotland 23

23 Income by Institution The University of Edinburgh The University of Glasgow The University of Strathclyde The University of Dundee The University of Aberdeen The University of St Andrews Heriot-Watt University Glasgow Caledonian University Edinburgh Napier University The University of Stirling The University of the West of Scotland The Robert Gordon University University of the Highlands and Islands SRUC Queen Margaret University, Edinburgh University of Abertay Dundee Glasgow School of Art Royal Conservatoire of Scotland m 100m 200m 300m 400m 500m 600m 700m 800m 24

24 The Funding Status Quo No tuition fees charged for higher education in Scotland Fees of up to 9000 per annum payable in rest of UK. Those charging fees above 6,000 have to allocate some funding to widening access initiatives. But according to the NUS, even with tuition fees in England, Scotland has the worst record on widening access in the whole of the UK 25

25 Income from tuition fees and education contracts by country of HE institution 2011/12 Northern Ireland Scotland Wales Full-time undergraduate Full-time postgraduate Part-time undergraduate Part-time postgraduate Non-EU domicile students England 0% 20% 40% 60% 80% 100% 26

26 Non-Scottish domiciled students in higher education in Scottish HEIs and colleges by domicile: to Non-Scottish domiciled students 25,845 7,850 10,830 26,730 7,985 12,750 26,870 8,370 15,370 26,235 9,195 16,915 25,955 9,870 18,230 26,700 10,875 19,475 27,270 12,070 23,085 28,290 12,670 22,445 28,520 13,850 25,155 29,830 16,075 25,995 35,000 30,000 25,000 20,000 Rest of UK EU 15,000 Non-EU 10,000 5, Academic 05 06Year

27 Increased flows from ruk during noughties fee effect? % Change since % 20% 15% 10% % Change in student numbers in Scottish HEIs and colleges from UK countries since % 22.9% The zero line represents no change since % 0% -5% -10% -15% % Scotland England Wales Northern Ireland -20% -25% Academic Year -19.0% 29

28 POST-INDEPENDENCE - SOLVING THE TUITION FEE ISSUE 31

29 Post-independence must treat ruk students as EU EU citizens are automatically entitled to study in other EU member states: they should not be paying higher tuition fees and they should be able to receive a residence permit (in order to obtain financial sustain as any other national student) after 5 years Hence, substantial increase in inflows post-independence from ruk? Studying in Scotland would not be free living costs incurred Recent NUS estimates of living costs = 12,056 per annum ( 4,834 for rent, 1,956 for food, 316 for household goods, 42 for insurance, 2,074 for personal items, 1,524 for travel and 1,310 for leisure). 32

30 Floodgates? Are living costs higher/lower in Scotland than elsewhere? Depends partly on place of domicile Paying no fees would reduce costs from 21,000 to 12,000 per annum 42 per cent (31 per cent if comparing 4year with 3 year course) How responsive is student demand to changes in fees? Recent estimates from Germany the imposition of any fees reduces enrollment by 2.7 per cent (Hubner 2012) 33

31 Floodgates? Suppose 1 per cent of qualified ruk students seeking to enter a full-time undergraduate course respond to lower course costs in Scotland by applying to Scottish institution. Increase in ruk applications = 3,900 Equivalent to 12 per cent of Scottish annual intake. 34

32 A Welsh Solution? Allow universities to charge (conditional) fees Use conditionality to support initiatives such as widening access/stem etc Offer Scottish tuition fee grants and loans to all Scottish domiciled students Could be universal or means-tested Means supporting the approximately 12,000 Scottish domiciled students studying in ruk approx. cost = 120m 35

33 It won t work!!! EU students must be offered the same fee support and grants as home students. The only cash they can t access are maintenance grants which can be offered to home students only. Spillover effects of large neighbour applying marginal cost pricing to merit goods when borders are porous. No obvious solution for small country wishing to subsidise these goods. 36

34 References Hübner, M. (2012). Do tuition fees affect enrollment behavior? Evidence from a natural experiment in Germany. Economics of Education Review. Textbox 37